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WWE Gets Smacked Down: What Wall Street's Saying

"As we outlined in our note yesterday, we thought the "pivot point" for the stock on the mark to market for WWE's domestic TV right fees was roughly 1.75x. A renewal above that level would likely have driven shares higher, something less and the stock could have sold off (although we would argue perhaps not as much as bears would have thought). We estimate the company's domestic TV rights will increase roughly 1.7x on average over the life of its new contract with NBCU. While that's not the outcome we were hoping for, it certainly isn't a bad one for the company. More importantly based on the stock price action heading into the print, we would argue shares would not have done much in response to that data point. That's not what happened after hours.

WWE shares were gashed after hours in response to the company's press release which included quixotic, confusing, and ultimately concerning 2015 guidance. Suddenly, investors are left to question all that they thought they knew about the WWE Network and its pathway to profitability. In short, the company's guidance includes a level of spending related to the Network which belies WWE's extraordinarily low content costs and efficient distribution. In general, WWE investors remain highly skeptical of management given past failures to deliver on promises such as the XFL and WWE Films. Over the past 5-6 weeks the company's initial Network subscriber numbers and the mark to market on the domestic TV rights fees both fell short of expectations, although in both cases management never provided specific guidance around those data points. Either way, investors are left with a feeling that the company consistently 'overpromises and underdelivers'."

"After the close, WWE issued a press release quantifying the impact of its new US TV license deal for RAW and SmackDown, as well as profitability under various OTT subscriber scenarios. We are raising our FY15 TV license OIBDA but lowering our total WWE OIBDA based on this guidance. Because we estimate an average of 1.5mm OTT subscribers in FY15, we lower our OIBDA estimate to coincide with management guidance of $80mm (down from $180mm). Although we reiterate our BUY rating because we view WWE as a Netflix-substitute, we understand that WWE's updated disclosures make WWE more of a 2016 story in our view (rather than 2015)."

Benchmark analyst Mike Hickey (Hold, No PT)

"The Company's valuation could take a heavy beating this morning, as the new domestic TV deal with NBCu likely disappointed investors over limited visibility / believability on the ultimate success of the Network. Our investment foundation for the Company's anticipated OIBDA acceleration has transitioned from a 2X increase in domestic TV rights fees over an option for incremental OIBDA from the WWE Network, to the necessity for the Network to provide the main driver for believed OIBDA growth. The initial subscriber number from the Network disappointed investors, and we have received limited visibility to where subscribers are currently tracking or where churn will ultimately settle; an uncomfortable silence that will likely extend until early August. We remain optimistic for the global success of the WWE Network, but consider the OIBDA growth shift to the Network as an unfavorable risk rebalance over the near term."